!  . 


LIBRARY 


Sound  vs*  Soft  Money 


c4DDRESS  OF 

cANDREW  J.  FRAME 

President  Waukesha,  (Wisj  National  ^ank 


=====   (Against  == 

c/JSSET  CURRENCY 

In  Reply  to  cAddresses  in  Favor  Thereof  by  Congress- 
man Chas.  N  Fo'wler,  of  Neft^  Jersey,  and 
Hon*  James  H.  Eckels,  President  of 
the  Commercial  National  Bank 
of  Chicago, 


BEFORE  THE 

WISCONSIN  STATE  "BANKERS'  cASSOCIATION 

cAT  MILWAUKEE,  cAVG.  5th  AND  6th,  1903 

DISPATCH    PRINT,    WAUKESHA.    WIS. 


The  Jury  decides  (Against  c/lsset  Currency 
and  Branch  Banking. 


READ  A  FEW  COMMENTS  FROM  METROPOLITAN  JOURNALS 

The  nilwaukee  Evening  Wisconsin  says:  "The  Wisconsin  Bankers' Association  is  against 
branch  banking,  and  is  not  in  favor  of  asset  currency.  That  is  the  tenor  of  the  resolutions 
whicli  it  adopted  yesterday  after  listening  to  the  elaborate  arguments  of  James  H.  Eckels  and 
Congressman  Fowler  in  advocacy  of  asset  currency  and  tlie  solid  and  brilliant  address  of  Andrew 
J.  Frame  against  it.  Mr.  Frame's  address  pierces  the  panoply  of  the  asset  currency  form  of  fiat- 
ist  at  every  point." 

The  Milwaukee  Journal:  "Neither  the  persuasive  oratory  of  Congressman  Charles  X.  Fow- 
ler nor  the  careful  elucidation  of  James  H.  Eckels  was  sufficient  to  convince  the  Wisconsin  Bank- 
ers' Association,  Thursday,  that  credit  currency  was  wliat  the  people  desire.  The  resolutions  (m 
the  currency  system  adopted  by  the  association  apparently  infer  that  the  sense  of  the  convention 
tended  more  along  the  line  of  argument  presented  by  A.  J.  Frame,  of  Waukesha,  who  pitted  his 
logic  against  an  elastic  currency  based  on  the  credit  of  the  financial  institutions  and  their  de- 
posits.   Branch  banking  met  with  disfavor."' 

The  nilwaukee  Sentinel:  "Credit  currency  and  branch  banking  did  not  meet  witli  favor  at 
the  hands  of  the  Wisconsin  Bankers'  Association.  Strong  arguments  were  presented  in  favor  of 
elastic  currency,  based  on  the  credit  of  the  financial  institutions  and  nu  their  deposits,^  by  James 
H.  Eckels,  president  of  the  Commercial  National  Bank  of  Chicago,  and  by  Charles  N.  Fowler, 
chairman  of  the  committee  on  banks  and  currency,  of  the  house  of  representatives,  but  even  such 
high  authority  as  this  could  not  shake  the  faith  of  the  Wisconsin  Bankers  that  a  currency  based 
on  such  security  was  not  what  the  people  wanted.  It  was  combatted  by  A.  J.  Frame,  of  Wauke- 
sha, and  the  resolutions  adopted  at  the  close  of  the  afternoon  session  show  that  he  had  the  best 
of  the  argument,  so  far  as  the  jury  to  which  he  made  his  appeal  was  concerned. "' 

Dr.  Amos  P.  Wilder  in  the  Madison  State  Journal:  "Theorist  and  practical  man  in  one 
is  A.  J.  Frame,  of  the  Waukesha  National  Bank.  The  immense  deposits  in  his  bank  are  the  won- 
der and  envy  of  institutions  in  many  larger  cities.  Trained  to  tlie  business  from  boyhood,  the 
impression  is  strong  that  as  a  banker  he  is  unexcelled.  To  his  business  capacity  Mr.  Frame  adds 
power  as  a  logical  and  forceful  writer  and  speaker.  By  his  particip;  tion  in  national  financial 
councils,  Mr.  Frame  has  done  Wisconsin  much  credit." 

The  Chicago  Tribune  refers  to  the  address  as  one  of  the  notable  features  of  the  day's  ses- 
sion. Further  says :  "The  anti-asset  currency  forces  were  led  by  A.  J.  Frame,  President  of  the 
W'aukesha  National  Bank,  who  in  a  strong  speech  characterized  asset  currency  with  its  boasted 
elasticity  to  be  nothing  else  than  a  system  of  stretclied  rubber  currency,  with  the  elasticity  all 
gone." 

The  Chicago  Banker:  "A.  J.  Frame,  of  Waukesha,  in  a  masterful  argument  attacks  credit 
currency  as  advocated  by  Congressman  Fowler."  And  further  says:  "Mr.  Eckels  did  not  remain 
long  unchallenged,  for  that  veteran  economist,  Andrew  J.  Frame,  of  Waukesha,  was  on  the  pro- 
gram for  an  address  on  'Sound  versus  Soft  Money."  He  handled  liis  subject  from  a  statistical 
standpoint,  and  marshaled  convincing  figures  from  our  own  and  other  nations"  banking  systems 
to  prove  the  fallacy  contended  for  by  Mr.  Eckels  and  later  in  the  day  by  Mr.  Fowler.  Mr.  Frame's, 
address  was  highly  approved  by  the  delegates  present,  as  could  readily  be  seen  by  their  nods  and 
words  of  approval."" 

The  Chicago  Economist  calls  the  paper  "a  strong  address." 

The  Chicago  Chronicle:  "Congressman  Fowler  and  other  learned  assetists  who  went  to 
Milwaukee  to  teach  Wisconsin  Bankers  things  which  they  did  not  know  about  currency  collided 
with  something  hard  in  the  person  of  one  of  those  presidents  of  country  banks  which  urban 
financiers  treat  witli  such  patronizing  condescension.  This  country  hank  president.  A.  J.  Frame, 
of  Waukesha,  handled  the  elastic  paper  currency  nostrum  for  our  financial  ills  without  gloves. 
He  dealt  in  hard  facts  which  assetists  cannot  brush  aside  and  which  are  none  the  less  facts  and 
none  the  less  cogent  because  they  are  stated  by  a  country  banker." 

The  New  York  Financier  dubs  the  address  "a  masterly  one." 

The  New  York  World:  "Mr.  A.  J.  Frame,  President  of  the  Waukesha  National  Bank, 
rendered  the  country  a  service  in  puncturing  this  scheme  at  the  meeting  on  Thursday  of  the 
Wisconsin  State  Bankers'  .-Association,  and  Mr.  Fowler,  who  tried  to  defend  it.  got  very  little 
comfort  from  the  bankers  there  assembled.  Mr.  Frame  showed  that  so  far  as  being  in  line  with 
tlie  best  foreign  practice,  the  plan  proposed  was  'not  parallelled  in  any  progressive  country'." 

Many  New  York  City  and  metropolitan  journals  in  other  cities  quote  liberally  from  the 
address. 


Hi, 


J^ 


Sound  vs.  Soft  Money. 


P/ 


I  grieve  to  disao^ree  with  some  of  my  ^rood  friends,  yet  I 
yield  to  no  man  in  ])atriotism.  I  desire  ameliorated  conditions. 
When  we  sum  up  the  years  of  a^Mtation  for  asset  currency  and 
a  sound  solution  of  the  elastic  problem  and  find  that  the  only 
])roduct  that  has  been  seriously  considered  to  date  is  the  Fowler 
Bill — to  the  fallacies  of  which  I  make  specific  reference  hereafter 
— I  conclude  it  is  easier  to  criticise  than  j^rovide  a  remedy  for 
incurable  diseases.  The  disease  under  discussion  niig'ht  be  diag"- 
nosed  as  "Hard  Up."  A  lar^e  majority  of  the  human  family 
have  an  annual  attack  of  it,  and  many  have  it  in  chronic  form. 
Issuinjjf  I.  O.  U's  will  rarely  cure  the  malad}',  but  liberal  liba- 
tions of  conservatism   wonderfully  ameliorates  severe  attacks. 

The  battle  of  the  Standards  which  has  been  fou<iiit  in  the 
United  States  for  more  than  a  cj^uarter  of  a  century,  culminated 
successfulh'  March  14th,  1900,  in  the  adoption  of  the  World's 
Standard,  g^old.  Since  then,  instead  of  streng-thening-  our  foun- 
dation by  unequivocal  laws,  making"  our  vast  quantity  of  infer- 
ior silver  coin — which  is  ever  decreasing"  in  intrinsic  value — re- 
deemable in  gold;  instead  of  wiping"  out  our  gfreenbacks,  thus 
removing"  another  burden  from  the  Government  which  is  not 
tolerated  by  any  progfressive  nation,  the  burden  of  song^  has 
been  to  undermine  our  present  foundation  by  the  injection  of  an 
additional  quantity  of  inferior  currency  called  Asset  Currency, 
under  conditions  not  paralleled  in  any  progfressive  country,  and 
which,  as  certain  as  the  laws  of  gravitation,  will  drive  ourg"old 
abroad  under  the  (jresham  Law,  or  produce  still  further  in- 
flation in  prices,  resulting  in  riotous  speculative  ventures  and 
consequent  deei)er  depression  when  the  ebb  tide  in  our  prosper- 
ity sets  in.  Such  a  result  is  as  inevitable  as  that  history  re- 
peats itself.  The  Kafiir  jiroveri)  that  "lie  who  will  not  profit 
by  the  experience  of  the  past,  gets  knowledg"e  when  trouble 
f)vertakes  him"  has  no  terrors  for  the  speculator.  Under  the 
impetus  of  rapid  fortune  ac(}uired  by  some,  in  the  swelling"  tide 
of  prosperity,  the  gfet  rich  c[uick  fever  has  intoxicated  the  many. 
Some  men  ordinarily  conservative  have  wavered  in  their  course 
and  been  drawn   into  the  maelstrom  of  underwriting"  specula- 


tivo  combinations  in  the  hope  of  excessive  profits.  The  promot- 
ers have  not  been  able  to  sell  enou<^h  of  their  watered  stock  to 
the  innocents  to  pay  loans,  so  banks  mi^-lit  meet  the  call  of  the 
country  for  cash  to  move  the  crops,  and  under  this  plea,  to- 
g-ether with  the  unsolved  sound  solution  of  the  elastic  problem, 
the  common  complaint  of  all  a<^es  for  "more  money"  is  heard 
abroad  in  the  land,  when  over-speculation  is  primarily  the  cause 
■of  trouble.  In  fact  crops  could  not  move  faster  as  transporta- 
tion facilities  are  taxed  to  their  utmost  every  fall.  This  is 
rather  a  g-rave  chargfe,  but  let  us  diao'nose  the  case  and  draw 
conclusions  as  to  its  merits. 

Britain,  after  a  campaign  as  long  and  as  bitter  as  ours  over 
the  Gresham  Law  and  the  expulsion  of  her  gold  by  the  injec- 
tion of  too  many  bank  notes  into  her  circulation,  unequivocalh' 
adopted  the  g-old  standard  in  1816.  The  integ"rity  of  that  stand- 
ard as  against  the  uncertainties  of  other  national  standards 
has  been  maintained  with  a  fidelity  that  commands  the  confi- 
dence of  the  whole  world  to  the  extent  that  London  has  long- 
been  the  World's  Clearing"  House.  Will  New  York  soon  win 
that  center  if  we  inject  an  additional  quantity  of  inferior  cur- 
rency into  our  circulation? 

QUANTITY    VERSUS    QUAIylTY. 

Christ  said,  a  wise  man  builded  his  house  upon  a  rock,  but 
"the  foolish  man  upon  the  sand.  When  the  rain  descended  and 
the  floods  came,  and  the  winds  blew,  the  wise  man's  house  fell 
not,  but  as  to  the  foolish  man's  house  g'reat  was  the  fall  thereof. 
Js  not  this  a  perfect  simile  to  apph^  to  the  building-  up  of  the 
superstructure  of  our  g'reat  credit  S3'stem  upon  a  sound  metallic 
currenc}'  for  a  foundation  as  ag-ainst  the  sands  of  a  credit  cur- 
rency? The  pages  of  history  are  strewn  with  proofs  that 
^'hen  the  g-reat  instrument  of  exchang-e  is  derang-ed,  all  trade, 
-all  Industry  Is  stricken  as  with  a  palsy.  That  instrument  of 
-exchange  recog-nlzed  b}'  the  world  as  the  solid  foundation  that 
does  riot  totter  when  the  storm  rag"es  in  its  severest  intensity, 
"^is  the  only  foundation  for  a  prosperous  people  to  rest  upon  and 
today  our  coffers  hold  over  a  billion  dollars  of  It.  This  is  a 
"billion  dollar  country  and  we  need  It.  This  g-old  has  come  to  us 
since  1873  in  the  natural  course  of  trade  in  response  to  the  well 
linown  principles  of  the  Gresham  Law  and  ]Monetary  Science, 
as  expounded  by  Dr.  Adam  Smith,  Ricardo,  Jevons,  Sumner  and 
many  other  eminent  Economists,  and  as  also  clearly  set  forth 


Ill  what  Prof.  Sumner  dubs  the  most  important  document  In 
financial  literature,  "The  Celebrated  Bullion.  Report  of  1810 
to  the  House  of  Commons."  I  have  quoted  these  maxims  be- 
fore, but  deep-seated  error  recjuires  repetition  of  them  aj^ain 
and  a<i'ain.      Summed  up  these  principles  are: 

1.  That  rich  countries  will  have  all  the  coin  the}'  need,  pro- 
viding" no  impolitic  act  of  legfislation  interferes  to  force  it  out  of 
circulation  b}'  the  injection  of  i)i/crior  ciirrcucics. 

2.  AVhen  the  coin  in  an}*  countr}'  exceeds  the  effectual  de- 
mand, no  vio'ilance  of  Government  can  prevent  its  exportation. 

3.  It  is  the  province  of  o-overnment  to  settle  the  qualily  ques- 
tion of  mone}',  and  the  needs  of  commerce  will  settle  the  quaii- 
tily. 

In  proof  of  the  above  maxims,  history  says,  Chinese  walls, 
jails,  shot  g"uns  or  hang-ing-  did  not  prevent  exportation  of  coin, 
and  in  these  modern  da3's  the  object  lesson  of  the  exportation  of 
more  than  twenty-five  millions  of  g-old  in  the  past  three  months 
in  the  face  of  the  plea  of  the  asset  currency  advocates  for  "more 
money  in  the  U.  S."  is  more  potent  than  pages  of  logic.  Let 
us  fix  the  "quality"  question  and  stop  tinkering"  with  the 
""quantity"  as  the    needs    of  commerce  will  settle  that. 

From  the  latest  reports  of  approximate  stocks  of  money  in 
the  world,  I  will  quote  a  few — 

IN 

Pop.  mils. 

United  States 80 

Great  Britain 42 

France  39 

Germany .'>7 

Kussia   1.30 

Canada ">  i ., 

In  1873  the  United  States  had  $18.,  per  capita  circulation  or 
a  total  of  750  millions  of  dollars,  and  practically  all  in  promises 
to  pa}',  California  and  vicinity  refusing"  to  adopt  soft  money. 
Today,  after  our  battle  for  sound  money,  according"  to  above 
tables,  we  have  about  $30,  per  capita  or  1250  millions  of  dollars 
of  gold  and  practically  the  same  amount  of  inferior  money,  our 
vast  hoard  of  silver  being"  nearly  two-thirds  iiat.  If  an  addi- 
tional quantity  is  needed,  let  gold  flow  in  under  natural  eco- 
nomic laws,  the  same  as  the  1250  millions  have  alreatlv  done. 
$62,000,000  in  1002  being-  added  to  our  stock.  Let  us  not  inject 
inferior    asset    currency  on  top    of  our  present  excessive  soft 


MILLIONS. 

Uncovered 

Total 

Gold 

Silver 

.     Paper. 

Total. 

Pel 

i-C: 

ip.  Cir. 

rJ50 

670 

580 

2500 

$30.00 

r/J8 

117 

117 

762 

18.21" 

00.3 

420 

134 

1457 

37.a 

7(53 

207 

153 

1123 

19.92 

71.-) 

10.-} 

828 

0.2.-^ 

20 

f)  : 

say    50 

75 

13.G3 

money  stock  and  drive  jifold  out,  thus  undermining-  our  house- 
hold/ 

The  unprecedented  production  of  <ifold  for  the  past  few  years 
has  paved  the  way  for  supplyin<if  all  the  <r<dd  this  "rich  coun- 
try" needs  to  fill  the  channels  of  trade.  The  increase  to  nearly 
400  million  dollars  in  Gold  Certificates  in  the  past  three  years^ 
to  save  abrasion  and  ])erfectly  serve  our  wants  in  every  way, 
is  in  line  with  the  trend  of  all  Europe  as  expressed  by  Prof.  Ed- 
mund Thery  in  "L'Economiste  European"  in  1898.  He  said  the 
<ifold  in  European  Banks  increased  in  14  years — 1883  to  1897 — 
from  700  million  dollars  to  1700  million  dollars  and  that  "In  all 
sound  money  countries  the  hcDik  note  is  in  course  of  becominj*-  a 
simple   g-old  cciiijicate  redeemable  on  demand." 

NO  PARALLEIy. 
I  assert  without  fear  of  intelli^-ent  contradiction  that  the 
new  Fowler  Bill  for  asset  currenc}^  to  be  issued  by  thousands 
of  banks,  larg'e  and  small,  has  no  parallel  in  any  prog-ressive 
country;  that  it  is  a  discarded,  unsuccessful  experiment  of  the 
past;  that  it  is  unsound  and  g"ives  preferences  to  picayune  cred- 
itors as  ao-ainst  the  larg'er  creditors,  the  millions  of  depositors, 
thus  producing-  distrust,  and  distrust  breeds  panic.  It  also 
lowers  our  standard.     Let  us  particularize  a  little. 

CANADA. 

Canada  has  35  larg^e  banks  with  about  70  millions  of  dollars 
of  capital  (which  has  g^rown  very  little  in  25  years)  and  about 
40  millions  of  surplus.  They  have  many  branches.  Thev  issue 
currency  based  on  a  five  per  cent  deposit  and  a  first  lien  on  as- 
sets. The  rigdit  to  issue  notes  is  limited  to  banks  with  not 
less  than  $500,000  subscribed  capital.  Banks  pa}'  out  only 
their  own  notes,  sending"  others  home  for  redemption.  AVhat  is 
the  result?  Canada  has  3.V  million  square  miles  of  territory,  or 
about  that  of  the  United  States  including  Alaska,  and  much  of 
it  very  productive;  her  population  is  a  measl}-  5.2  millions;  her 
total  banking-  power  is  not  equal  to  that  of  little  Massachusetts 
with  only  8,315  square  miles  of  territory;  neither  is  it  equal  to 
that  of  Illinois,  Pennsylvania  or  New  York. 

We  hear  the  cry  for  "more  mone}'"  in  the  United  States. 
By  the  foreg'oing'  table  we  have  $30  per  head — one-half  g"old. 
Canada  averag-ed  in  1902  about  S13.63  per  head  and  of  that  only 
S3. 64  per  head  is  g"old.  Would  inferior  asset  currency  furnish 
our  live  country  with  its  vast  foreigm  trade  an  ample  quantity 


of  international  money  or  drive  out  j^-okl  under  the  Gresham 
Law?  If  the  banking-  system  of  Canada  has  anytliin^-  to  do 
with  her  lack  of  progress,  then  let  us  stand  by  our  system 
under  which  our  progress  seems  to  know  no  bounds.  Compari- 
son with  unprogressive  Canada  is  simply  ridiculous. 

GREAT    BRITAIN. 

The  Bank  of  Eng-land  issues  iTlS,  175,000  of  notes  on  a  de- 
posit of  the  same  amount  of  Government  securities.  It  has  30 
to  40  million  pounds  sterling"  in  notes  outstanding-  constantly 
in  addition,  but  every  note  has  its  value  in  gold  behind  it.  The 
large  l)anks  of  ICngland,  Scotland  and  Ireland  in  1844  and  1845 
were  limited  to  the  amount  of  their  then  outstanding-  uncovered 
notes,  and  70  per  cent  of  the  rig-ht  of  issue  of  an}-  of  these  banks 
g-oing-  out  of  business  since  that  date  has  reverted  to  the  Bank 
of  Eng-land.  Since  1844  this  has  reduced  the  maximum  un- 
covered issues  /:6,000,000  and  added  /:4, 175,000  to  the  Bank  of 
Eng"land  issues.  Of  late  the  whole  amount  of  asset  currency 
issued  by  all  the  big-  issuing*  banks  of  Eng-land,  Scotland  and 
Ireland  has  been  approximately  the  insig-nilicant  sum  of  five 
million  pounds  sterling,  or  about  two-thirds  of  the  maximum 
allowed,  and  all  the  rest  of  their  circulation  has  Government 
securities  or  gold  behind  it.  What  is  the  secret?  Inability  to 
pay  out  any  notes  but  their  own  and  UNLIMITED  LIABIL- 
ITY of  every  bank  stockholder  for  every  note  in  circulation. 
How  much  circulation  would  our  banks  issue  if  under  such  re- 
strictions, including-  an  ''uuUuiitcd  liabilily^  clause  on  issues? 
The  clear  intent  of  Britain  is  to  oitirely  eliminate  bank  note  cur- 
rency from  her  circulation  cxccptiiisf  o)ily  tJntt  of  the  Bank  of 
Eng-la)id.  Mr.  Fowler  at  New  Orleans  and  before  a  Commit- 
tee in  Cong-ress,  stated  that  Scotland  could  issue  S148,000,000., 
asset  currenc}'.  When?  In  1845  the  uncovered  circulation 
maximum  allowed  by  law  was  ;{^3,087,209  and  in  1898  it  was 
X2, 076, 350 — according-  to  the  IMonetary  Commission  Re])ort — 
(see  pag-e  281  j — and  Soun<l  Currency  Red  Book  (pag-e  187). 

FRANCE. 

Since  1848  the  Bank  of  France  has  had  the  sole  rijifht  of  issue 
in  France.  Mr.  Fowler  in  his  zeal  for  asset  currency  states, 
that  the  Bank  of  France  can  issue  $1,000,000,000  of  notes,  but 
he  fails  to  state  that  the  Bank  of  France  of  late  years  has  had 
approximately  S700,000,000  of  circulating-  notes  outstanding-, 
and  has  kept  about  90  per  cent  of  its  outstanding-  notes  in  coin 


ill  its  vaults.  If  the  small  deposit  account  of  say  $150,000,000 
is  added  to  the  circulation,  the  averg-^jfe  coin  reserve  has  been 
about  75  per  cent  of  the  whole.  (Let  us  not  forofet  that  the  coin 
reserve  of  National  Banks  is  but  8  per  cent  of  such  lialjilities.)' 
That  o"reat  reserve  of  coin  naturally  inspires  confidence.  The 
balance  of  its  liabilities  even,  is  partially  covered  b}'  loans  to- 
the  Government,  so  the  bank  could  pay  over  75  per  cent  of  all 
its  liabilities  by  selling-  its  Government  paper  without  callinsT  a 
dollar  of  its  loans.  The  Bank  of  France  is  more  a  bank  of  issue 
than  a  bank  of  deposit,  as  its  issues  have  averao;ed  live  times- 
its  deposits  for  many  years. 

GERMANY. 

The  Imperial  or  Reichsbank  of  Germany  is  allowed  a  maxi- 
mum issue  of  uncovered  notes  to  the  amount  of  about  120  mil- 
lion dollars.  Five  per  cent  interest  is  charg^ed  on  issues  in  ex- 
cess of  this  for  emerg-encies.  For  ten  years  past  it  has  had  a 
metallic  reserve  of  say  80  per  cent  on  an  averag'e  circulation  of 
about  300  million  dollars.  Add  deposits  to  circulation  and  the 
reserve  of  both  has  been  about  60  per  cent.  The  many  other 
issuing-  banks  are  now  reduced  to  only  live  larg^e  banks  that 
are  allowed  to  issue  asset  circulation  to  the  extent  of  the  com- 
paratively insig^nificant  sum  of  18  million  dollars,  any  excess 
being"  covered  by  treasury  notes  (which  notes  are  fully  covered 
by  g"old  in  the  Government  war  chest),  notes  of  other  banks  or 
coin.  L.  Carroll  Root  says  "The  National  or  (Imperial)  Bank 
is  the  center  of  the  system,  \vitli  the  evident  intent  on  the  part 
of  the  Government  ultimately  to  transfer  to  it  the  "SOLE) 
RIGHT  OF  ISSUR."  Now  note,  The  issue  of  the  uncover- 
ed notes  allo-jsed  a  /czl:  years  ag'o  in  order  to  nurse  aiono-  the 
speculative  advoiturers  resulted  disastrously  and  Gerniany  has 
been  in  a  depressed  financial  co)idition  ever  since.  If  only  the 
five  per  cent  emerg'enc}"  currency  had  been  issued,  the  specula- 
tive fever  w'ould  probably  have  been  checked  before  serious 
trouble  ensued. 

The  following-  countries  have  onlv  one  bank  of  issue,  to-wit: 

Capital.  Reserves  required  on  note  issues. 

The  Bank  of  Austria. .       45  mil.  dols.    40  per  cent,  coin  and  60  per  cent,  quick 

assets. 

Bank  of  Belgium 10    "        "        "S^^  per  cent,  coin  on  notes  and  deposits^ 

Bank  of  Netherlands. .     6I3     "        "        331^     "      "        "  "  " 

Bank  of  Norway .31-3     "        "        50        "      "    as  to  notes  in  coin. 

Nat.  Bank  of  Denmark    7i^     "        "        37I2     "      "        "        "        "      "     and  150 

per  cent,  assets  besides. 
Imperial  B'k  of  Russia      20    "        "        Over  100  per  cent. 


7 

There  are  three  large  banks  in  Italy  and  three  in  Greece. 

Sweden  has  a  lar<jfe  state  bank  and  some  private  banks  that 
issue  currency  based  on  a  deposit  of  mort,i;\'iges,  etc.,  in  public: 
custody. 

Is  it  not  clear  from  the    foreo'oing-  that  the  ^vvy//  coitralizeiiT 
i}istilutions  of  European  nations  are  assumin<>f  the  issuing  func- 
tions of  the  currency,  with  a  metallic  fouiuiatioii  as  heretofore 
referred  to  in  Prof.  Thery's  article? 

OXTEAM   VERSUS   20TH   CENTURY    PROGRESS. 

What  about  former  New  England  Banking?  The  Suffolk 
system,  The  Banks  of  Indiana  and  Louisiana  and  several  oth- 
ers so  often  quoted  by  Asset  Currency  advocates?  Simply: 
this.  On  pages  302-3  and  4  of  the  Report  of  the  Monetary 
Commission,  under  the  head  of  New  England  Bank  Currency, 
we  find  that  "in  some  states  an  loilhiiilcd  linhilily  for  both  notes 
and  deposits  was  enforced  upon  the  ofhcers  in  case  of  misman- 
agement. In  some  instances  the  stockholders  were  liable  to* 
the  amount  of  their  stock  for  the  ultimate  payment  of  the  notes, 
and  in  Rhode  Island  they  were  subject  to  unlimited  liability.'^  • 

Under  the  "Suffolk   System"  each  country  bank  kept  S2, 000 
on  deposit  in  Boston  without  interest.     Banks  were  compelled 
to  pay  out  o}ily  their  o'i'ii  )iotcs,  and  send  all   others   to   Bostorr. 
for  redemption.     This  compulsory   redemption,  lack   of   confi- 
dence in  paper  money  generally  and   scarcity  of  gold   in   those- 
days  brought  about  the  redemption  of  bank  notes  in  that  S3''s- 
tem  ten  times  over  every  year,  thus  entailing  exasperating  an- 
noyances, constant  assorting  and  expense  for  express,  etc.,  ancP" 
history  sa3"s  "Country  banks  were  loud  in  deniuiciation  of  thc- 
S3'steni,  and  there  was  alwa3's  friction  between  the  Cit3''  andi 
Countr3'   banks."     With   all   the  rigid  regulations    the  loss  ta- 
holders  of  notes  in  failed  banks  in  that  small  system  was  ?S77,- 
327.     As  no  man  has  ever  lost  a  dollar  in  the  past  forty  3'ears, 
nor  sleep  either  under  our  vast  National  system,  distrust  is  en- 
entirely  eliminated,  therefore  no  one  troubles  himself  about  re- 
demption. 

In  the  Sound  Currency  Red   l>ook    in   an    articK-    by    Horace- 
White,  a  strong  advocate  of  asset  currencN ,  pages    2<>7   to  210. 
we  find  under  the  head  of — 

STATE    BANK    OF    INDIANA. 

*'On  all  a])[)lications  for  loans  above  S50().,  a  majority  vote  oF 


8 

live-sevenths  of  the  l)oar(l  was  necessary,  and  this  must  be 
entered  on  the  minutes  with  the  names  of  the  directors  so  vot- 
iiifif.  Directors  were  individually  liable  for  losses  resulting 
from  infraction  of  the  law,  unless  they  had  voted  against  the 
same  and  caused  their  votes  to  be  entered  on  the  minutes,  and 
had  nolificd  the  Governor  of  the  State  of  such  infraction  forth- 
with, and  had  published  their  dissent  in  the  nearest  newspaper. 
Any  aljsent  director  to  be  deemed  to  have  concurred  in  the  ac- 
tion of  the  board,  unless  he  should  make  his  dissent  known  in 
like  manner  within  six  months."  One-half  of  the  stock  be- 
lonjT^ed  to  the  State.  The  bank's  principal  l)usiness  was  loan- 
ing- its  own  notes,  its  deposits  bein<)f  but  a  small  fraction  of  its 
capital. 

We  also  find  under  the  head  of — 

LOUISIANA    BANK    ACT    OF    1842. 

1st.  A  specie  reserve  equal  to  one-third  of  all  its  (the  Bank's) 
liabilities  to  the  public. 

2nd.  The  other  two-thirds  of  its  liabilities  to  be  represented 
by  commercial  paper  having-  not  more  than  90  days  to  run. 

3rd.     No  bank  to  pa}'  out  any  notes  but  its  own. 

4th,  All  commercial  paper  to  be  paid  at  maturity,  and  if  not 
paid,  or  if  an  extension  were  asked  for,  the  account  of  the  party 
to  be  closed  and  his  name  sent  to  the  other  ba)iks  as  a  delinquent. 

It  would  take  a  powerful  glass  to  spy  out  a  g-aller}'  of  bank- 
ers that  would  stand  such  ridiculous  rules  as  those. 

References  warmly  advocating  the  Indiana  and  Louisiana 
systems  by  Horace  White  and  Cong-ressman  Fowler  were  made 
at  New  Orleans  before  the  American  Bankers'  Convention. 

I  will  ask  in  all  seriousness!  If  w^e  were  to  adopt  the  Louis- 
iana Act  of  1842  of  compelling  the  keeping-  on  hand  of  33^  per 
cent  in  specie  of  all  liabilities  to  the  public,  the  National  Banks 

would  hold  today — 

More  tlum ". $1,600,(XX),000  specie 

WMereas,  they  hold  say  8  per  cent,  or  about 100,000,000      " 

The  rig-id  Louisiana  Act  would  require  an  additional  SI, 200,- 
000,000  of  coin  reserve.  Under  the  Louisiana,  Indiana,  Iowa 
and  Ohio  experiences  which  are  almost  parallel  as  to  reserves, 
we  would  be  compelled  to  keep  three  to  four  times  as  much 
specie  reserve  as  we  do  now.  Where  would  the  coin  come 
from,  and  who  would  retain  their  National  Bank  Charter  un- 
der such  rigid  rules  and  many  others  not  enumerated?  Prog-- 
ress  would  simply  be  throttled. 


9 

Aofaln,  under  the  Indiana  experience,  the  hanks  were  limited 
in  their  ag't^rej^'ate  loans  to  two  and  one-half  times  their  capi- 
tal. The  a<jf<i"re<»'ate  of  loans,  includin<^'  other  securities  in  Na- 
tional Banks  today,  is  over  five  and  one-half  times  their  capital. 

Althou<4"h  distrust,  insufHicient  coin  and  <^"eneral  wild  cat  bank- 
incr  drove  home  for  redemption  the  asset  currency  issued  in 
these  isolated  cases,  no  loss  occurred  because  of  over  ri^'id  reg"- 
ulations,  excessive  reserves  and  limitations  of  development. 
Those  were  the  da3's  of  the  oxteam  and  not  paralleled  b_v  20th 
Century  conditions. 

ELASTICITY. 

To  obtain  anv  elasticity  whatever  at  least  one  of  three  condi- 
tions is  necessary — 

1st.  Distrust  in  the  mind  of  the  holder  of  a  note,  thus  has- 
tening* redemption. 

2nd.     A  compulsory  law  to  drive  it  home. 

3rd.  A  gfraded  tax  sufilciently  hig"h  to  make  it  improfitable 
except  under  stress. 

The  first  head  needs  no  arg"ument.  Greenbacks  are  not 
clastic,  althoug4i  redeemable  in  g'old,  because  the  element  oi  di's- 
/ncst  is  wanting".  The  second  head  by  paying"  out  onlv  their  own 
notes  operates  in  Canada  in  sending"  all  currency  home  twelve 
times  a  year,  and  in  Scotland  all  notes  are  redeemed  twenty 
times  over  in  a  3'ear.  Like  conditions  in  the  United  States, 
with  our  thousands  of  banks  and  vast  extent  of  territory,  if  the 
([uantity  of  such  currency  as  sug"g"ested  by  Mr.  Fowler  was 
issued,  the  cost  in  labor,  time  in  transit  both  wa3's,  expressag^e, 
etc.,  would  entail  an  expense  to  the  banks  of  millions  of  dollars 
annually,  besides  being-  practically  impossible. 

FOWIvER   BILL. 

The  new  "Asset  Currency"  Fowler  ]>ili  contains  these  sec- 
tions: 

Sec.  1(1.  "Thc'it  for  the  jnirposes  of  this  xVct,  New  York, 
Chicag"()  and  San  Francisco  shall  be  redeni[)tion  cities,  and  all 
of  the  national  banks  redeeming"  their  notes  at  any  one  of  these 
cities  shall  constitute  a  redemption  district,  and  the  New  York 
redemption  district  shall  be  known  as  number  one,  the  Chicagfo 
redemption  district  as  number  two,  and  the  San  Francisco  re- 
demption district  as  number  three. 

Sec.  11.     That  if  any  national  bank  shall  receive  such  circu- 


10 

latin<i"  notes  of  .'iny  other  n.'itional  h.ink  located  outside  of  its 
own  district  it  shall  not  pay  them  out  over  its  own  counter,  l)ut 
shall  forward  them  either  to  some  bank  in  the  district  to  which 
the  notes  beloniif,  or  to  some  bank  located  in  the  redemption 
city  of  its  own  district,  and  then  they  shall  be  returned  to  the 
bank  issuing-  them  or  to  some  bank  in  the  district  to  which  the 
bank  issuing-  them  belonf*-s." 

Now  note:  What  a  lovel}'  occupation  the  tellers  will  have 
assorting"  out  notes  of  banks  "outside  of  its  own  district"  es- 
pecially if  they  are  like  present  issues — packintjf  them  and  ex- 
pressino"  to  "some  bank  in  the  district  to  which  the  notes  be- 
lonf>-"  or  "to  the  redemption  city  of  its  own  district"  and  then 
they  shall  be  returned  (by  express  ao-ain)  to  the  issuing-  bank 
or — I  will  add  to  the  nearest  and  cheapest  spcjt  where  they  can 
be  g'ot  rid  of,  then  vice  versa  to  reimburse  i)anks  for  cash  re- 
serves. AVould  not  this  process,  with  its  localized  currency, 
pettv  and  expensive  annoyances,  /)ett//'oo-o-/;/a-  at  redeniptioii, 
fail  in  its  object,  to-wit: — Direct  compulsory  redemption? 
Would  it  not  be  clearly  an  act  of  credit  currency  inflation?  A 
stretched  rubber  with  the  elasticity  gfone? 

The  element  of  distrust  doubtless  would  be  small,  because  of 
the  o'uarantee  fund  and  first  lien  on  assets,  but  that  same  ele- 
ment in  times  of  financial  trouble  would  be  deep-seated  with 
the  g^reat  army  of  depositors,  because  of  that  first  lien.  The 
depositor  has  just  as  much  rig-ht  to  know  he  has  equal  rig-hts 
jn  assets,  as  that  a  banker  will  rest  more  sweetly  if  he  knows 
his  borrowing*  customer  has  o^'ivenno  Jirst  //en  to  another  on  his 
assets. 

DEPOSITORS  LOSE. 

If  we  prefer  the  note  holder  by  a  first  lien  to  the  depositor 
who  takes  the  dreg's  this  will  surely  be  the  result.  Under  the 
present  law  for  every  $100,000  of  circulation  issued  S100,000  of 
Government  bonds  are  deposited  to  secure  it.  These  bonds  can- 
not be  spouted  for  any  other  purpose  and  in  case  of  a  bank  fail- 
ure the  S100,000  circulation  is  fully  cared  for  and  the  premium 
on  the  bonds  is  left  for  the  depositor,  together  with  all  other 
assets.  Under  the  asset  currency  scheme  in  case  of  failure  of  a 
bank,  the  S100,000,  which  ougdit  to  be  in  Government  bonds  to 
care  for  circulation,  is  loaned  on  commercial  paper.  The  1902 
Report  of  the  Comptroller  of  the  Currency,  pag"e  386-7,  shows 
for  banks  that  have  failed  in  the  past  fortv  years  this  result — 


11 

Nominal  assets  at  date  of  suspensiou 81-i0,5r)i,311 

Collected  from  assets 77,529,051 

Leaving  losses  of 872,()24,7(>0 

or  about  48  per  cent  of  assets.  Is  it  not  clear  that  for  every 
S100,0()()  in  commercial  loans  instead  of  in  bonds  the  depositors 
would  receive  S48,()00  less  in  dividends  than  under  the  bond  se- 
cured plan? 

The  third  point  is  the  only  one  that  oufi^ht  to  be  considered 
seriously.  Under  ordinary  conditions  the  fluctuation  in  the  in- 
terest rate  should  be  the  barometer  which  ouj^Mit  to  check  undue 
expansion  and  inspire  conservatism.  Under  fear  of  occasional 
i^xtraordinary  disturbed  conditions,  if  cash  could  be  provided 
on  sound  principles  to  loan  to  all  solvent  parties,  serious  losses 
would  doubtless  be  prevented;  but  such  cash  should  at  once  by 
a  heavy  tax  be  forced  to  return  to  its  reservoir  as  soon  as  its 
work  was  accom])lished,  so  that  no  act  of  inflation  would  result. 
Its  operation  should  be  like  a  water  reservoir,  always  ready  to 
put  out  an  inci])ient  lire  and  at  once  refill  ag-ain.  In  the  panic 
of  1873  about  S33,0(JO,(:)()0  of  Clearino-  House  certificates  were 
issued,  and  in  1893  but  S(>6,00(),000.  Last  fall  the  New  York 
Clearino-  House  Bank  reserves  were  short  S23,000,()00.  ^Ir. 
Gao-e  stated  that  that  shortag-e  compelled  592,000,000  in  licpii- 
dation  of  loans  and  de])osits,  the  reserve  being"  one-quarter  of 
the  de])osits.  li  $23,000,000  to  S6(),000,000  will  put  out  a  se- 
vere hre,  why  do  we  need  8175,000,000  as  provided  by  the  Fow- 
ler Bill  as  the  entering-  wedg-e  and  more  than  $500,000,000  later 
as  the  intoxication  gfrows  under  the  stimulus  of  soft  money,  as 
indicated  by  Mr.  Fowler  in  his  address  at  St.  Paul  on  July 
7th,  last?  Let  us  not  forg-et  thougfh  that  under  the  Fowler  BiU 
forced  rcdoiiptio)!  is  a  farce;  therefore  the  reservoir  will  likely 
be  empty  when  the  lire  g-rows  warm.  The  proposition  to  issue 
'  asset  currency  to  the  extent  of  100  ])er  cent  of  National  Bank 
capital,   I  consider  positively  dang^erous.      Kig"ht    here  permit 

A    SUGGESTION. 

It  may  not  be  a  perfect  plan  in  accomplishing"  the  end  soug"lit, 
but  no  ])r()position  yet  offered  is  ])erfect. 

1st.  A  bill  somewhat  on  the  lines  of  the  AUlrich  measure 
ougfht  to  be  put  upon  the  Statute  books  to  prevent  locking-  up 
lumecessary  funds  in  the  United  States  Treasury. 

2nd.  Leg"ali/,e  Clearing"  Houses  as  banks  of  issue  on  same 
form  as  National  Bank  currency,  secured  by  Clearing-  House 
Certificates  issued  on  same  plan  as  heretofore,   to  any  bank  in 


12 

c-lc.'irin<i-  house  to  whom  the  Clearing"  House  Committee  sees  fit 
to  j^rant  it.  Five  per  cent  interest  to  be  charg-ed  from  date  of 
issue  to  (late  of  deposit  by  the  borrowing  bank,  of  funds  with 
United  States  Treasurer  to  redeem  its  borrowings,  when  the 
Clearing"  House  Certificates  will  be  cancelled  and  securities  re- 
turned. 

This  will  permit  not  only  National,  but  State,  private  or 
any  other  clearing  house  bank  to  g"et  advances  in  times  of  finan- 
cial stress.  Country  banks  can  g-et  advances  throug"h  their 
correspondents,  thus  serving-  all  the  banks  of  the  country. 

The  conservatism  of  the  Clearing-  House  Committee  will  pre- 
vent unnecessary  issues,  the  rate  of  interest  will  prevent  infla- 
tion, and  redemption  will  automatically  take  place  as  soon  as 
pressure  for  funds  is  over. 

ANOTHER   SOLUTION. 

It  is  a  sig-nificant  fact  that  the  Chicagfo  Clearing"  House  has 
never  issued  an\^  clearing  house  certificates.  An  examination 
of  records  shows  material!}^  larg-er  reserves  of  cash  on  hand  and 
due  from  banks,  as  ag"iinst  New  York  reserves  for  many  years 
past,  thus  clearly  revealing-  the  cause.  If  New  York  will  avoid 
trouble,  let  her  keep  adequate  reserves,  reduce  her  paying*  in- 
terest rate  on  balances  when  money  is  easy,  curb  the  stock  job- 
bers' demands,  and  when  countr}'  banks  call  for  their  own  de- 
posits to  move  crops,  small  troubles  will  result.  'As  old  world 
metropolitan  cities  are  internal,  New  York  must  look  to  her 
laurels  or  Chicag'o,  located  practically  in  the  center  of  the  gar- 
den of  America,  will  capture  the  prize. 

I  challeng-e  any  man  to  prove  that  since  1893  there  have  been 
more  than  two  fall  seasons  when  the  money  market  has  been 
above  a  normal  or  reasonable  level,  and  then  speculation  and 
not  crop  movements  were  the  primary  causes  of  trouble.  I  will 
specify  these  causes  later.  The  slig-ht  raise  in  rates  was  g"en- 
erall}^  appreciated  after  the  ver}'  low  rates  for  most  of  the  3-ear. 

Do  we  need  more  fiat  money  in  the  United  States?     Look  at 

the  table  of  approximate  stocks  of  money  as  noted  heretofore — 

Silver  Coin.  Uncovered  Paper. 

The  U.  S.  has S()70,0(X)AXX)  8580,(XX),CXX) 

Great  Britain  has 117,0(X).(XX)  117.CXX),CXX) 

F'ranoe  has 420.(XXUM.K»  13-t.(XX),(XX> 

(ierniany  has 207,0CX),W0  loSAXXOCHl 

Kussia  has 103,(XXl(XtO  None. 

Canada  has o.OOO.lXK)  50,000,000 

Nearl}'  all  silver  Is  subsidiary'  except  that  of  France  and  the 


13 

United  States.  Does  an}'  one  think  from  the  foregfolng-  im- 
mence  issues  ao-orefj-ating-  $1,250,000,000,  which  exceeds  the 
combined  stocks  of  silver  and  uncovered  paper  in  Great  Britain, 
France  and  German}',  that  we  need  more  soft  money  injected 
into  our  circulation?  Never  in  the  history  of  our  country  was 
our  credit  system  so  expanded  as  it  is  today.  We  do  not  need 
additional  I.  O.  U.  or  assc/  cicrroicy,  which  only  adds  fuel  to  the 
iire  of  speculative  frenzy.  What  we  need,  if  anything-,  is  less 
inferior  money  and  more  gold  for  a  foundation  that  will  stand 
throuo-h  storm  as  well  as  sunshine.  Under  natural  economic 
laws  over  $550,000,000  of  o-old  has  come  to  us  in  the  past  five  or 
six  years.  More  will  not  undermine,  but  streng-then  the  foun- 
dation. It  will  only  come  to  us,  if  we  need  it,  by  keeping-  out 
cheaper  money,  and  especially  credit  currency  which  is  not  as 
o-ood  as  what  we  now  have.  We  have  ample  assets  with  which 
to  buv  more  gfold  in  the  world's  markets  if  the  natural  needs 
of  commerce  demand  it,  and  we  only  need  some  provision  for  ex- 
traordinary emerofencies,  as  noted  under  the  third  clause.  In 
the  emerofency  of  the  Baring-'s  failure  in  Great  Britain  in  1890, 
the  Bank  of  England  borrowed  from  the  Bank  of  France  /-3,000,- 
OOO  and  from  other  outside  sources  ^"2,000, 000  more.  If  we  keep 
our  credit  unstained  and  unstrained,  the  wt)rld  will  lend  to  us  in 
need,  as  we  have  plenty  of  collateral. 

INTEREST    RATES. 

A  late  writer  in  a  New  York  mag-azine  advocated  asset  cur- 
rency in  the  United  States  to  lower  and  hold  steady  interest 
rates,  in  order  that  New  York  mig-ht  wrest  from  London  the 
title  of  the  world's  financial  center.  What  log'ic!  Great  Britain 
has  the  most  rigid  and  least  elastic  of  all  currency  systems  in 
the  world,  l)ut  she  has  a  metallic  foundation  that  the  world 
never  questions.  Her  surplus  cajiital  is  invested  the  world 
over  and  is  subject  to  her  beck  at  all  times.  These  are  clearly 
the  reasons  why  rates  of  interest  are  more  steady,  and  her  pres- 
tig-e  would  doubtless  wane  under  credit  currency  expansion 
such  as  we  are  now  discussing*. 

Our  friend  Fowler  also  advocates  asset  currency  to  lower  the 
rate  of  interest  in  the  United  States.  Rates  of  interest  with  us 
now  are  al)out  one-half  those  of  thirty  to  forty  years  ag-o,  and 
every  decade  sees  a  decline  in  rates.  After  carefully  reading- 
the  best  authorities  on  political  economy  I  conclude  the  cause 
is  accumulated  surplus  capital  and  not  running-  the  printing- 
press  increasing- outstanding  I.  O.  U's.      Mr.  Fowler  also  says 


14 

present  rates  of  interest  for  the  benefit  of  five  million  borrow- 
ers oufjfht  to  be  cut  in  two,  but  how  about  the  benefits  to  the 
fifteen  million  depositors,  the  ei<4"hteen  million  holders  of  insur- 
ance policies  and  millions  of  other  saving's  of  the  people  g"ener- 
all}'?  The  g-reatest  g-ood  to  the  greatest  number  clearly  does 
not  require  ruinously  low  rates  for  interest.  I  challeng-e  any 
man  to  show  me  a  countr}-  wliere  a  very  low  interest  rate  pre- 
vails that  can  compare  with  ours  in  general  prosperity.  Then 
what  is  the 

PRIMARY    CAUSE    OF    TROUBL,E? 

My  answer  is  over-speculation.  Let  me  quote  and  see  what 
the  consensus  of  opinion  is: 

The  Chicagfo  Economist  of  November  15th,  1902,  says  in 
speaking-  of  the  New  York  Chamber  of  Commerce  action  on 
"Currency  Reform:"  "The  present  impulse  in  New  York  comes 
from  the  recent  string^ency  in  the  nione}"  market,  the  decline  in 
stocks  and  the  inability  of  the  promoters  to  bring*  out  a  larg"e 
number  of  new  issues  that  are  proving-  rather  burdensome  to 
them.  After  all,  what  new  York  really  needs  is  an  act  to  re- 
form human  nature.  No  amount  of  leg'islation  respecting  the 
currency  will  prevent  the  human  animal  from  g^oingf  too  far 
when  he  g^ets  into  a  speculation.  That  is  what  is  the  matter 
just  now  at  the  financial  center  of  the  United  States." 

From  American  Banker  of  October  lltli,  1902,  I  quote — 
"It  is  believed,"  says  the  London  correspondent  of  the  New 
York  "Evening-  Post,"  who  is  well  informed,  "that  the  effect  of 
the  New  York  market's  over-speculation  and  diversion  of  capi- 
tal into  liug-e  combines  is  still  to  be  felt.  European  banks  are 
clearly  not  willing*  to  spare  gfold  for  New  York,  and  the  reason 
apparently  is  that  they  think  such  shipments  would  serve 
merely  to  fan  speculation  on  the  stock  exchang-e.  This  position 
appears  to  have  been  distinctly  taken  by  the  president  of  the 
Imperial  Bank  of  Germany,  who  declares,  in  substance,  that 
American  financial  interests  are  paying*  the  penalty  of  loidiie 
rashness  in  speculative  activity.'''' 

The  New  York  Financier   of   October    13th,    1902,    says— 

"Financial  institutions  have  been  more   than  liberal  in  their 

support  of  the  rising*  markets,  but  they  recog*nize  the  fact  that 

an  end  must  come  sometime  to  all  upward  movements  and  the 

consensus  of  opinion  inclines  to  the  belief  that  now  is  the  time 


15 

to  put  on  the  l)rakes.  The  firm  foundations  alread}'  laid  will 
support  Icjyitiniate  expansion,  but  the}'  are  not  able  to  carr\'  the 
top-heavy  supcrstnicturc  u/iich  IVa//  street  has  bee)i  attempthi^ 
to  build  of  late. ' ' 

"Bankers  admit  that  present  reserves  are  too  low.  The}'  feel 
that  their  plain  duty  from  now  on  is  to  increase  them.  The 
country  has  adopted  a  dan^-erous  g"ait  in  the  last  year  and  the 
wisdom  that  is  leadinj,*-  bankers  to  refuse  longfer  to  be  a  party 
to  it  is  to  be  commended.  On  their  conservatism  rests  the  con- 
tinuation of  real  prosperity." 

The  Journal  of  Commerce,  Commercial  and  Financial  Chron- 
icle and  The  Bankers'  Magazine  of  New  York  have  articles  in 
a  similar  strain. 

In  the  New  York  Evening-  Post  of  November  last  in  the 
^Vmerican  Bankers'  Convention,  New  Orleans,  Special  issue, 
I  find— 

"The  simple  truth  of  the  matter,  recogfnized  by  every  ob- 
server with  his  eyes  open  and  his  wits  at  work,  is  that  our  \)VO- 
moters  and  speculators  have  pushed  their  undertakin<i-  beyond 
the  limit  where  available  capital  was  sufficient  to  bear  the  bur- 
den. When  such  a  situation  is  faced  by  any  community  the  in- 
evitable outcome  is  liquidation  of  liabilities.  This  is  the  pro- 
cess now  at  work  upon  the  markets,  and  it  is  the  o)ily  correetive 
of  the  sitiiatio)!.  The  course  of  events,  regfarded  from  the  un- 
biased view  of  the  economic  critic,  has  been  as  lo^fical  as  any 
in  the  history  of  finance.  The  syndicates  resorted  indirectly 
to  the  American  banks,  to  provide  the  capital  and  hold  the  se- 
curities until  the  public's  mood  should  chanj^'e.  The  last  statfe 
witnessed,  was  the  expansion  of  the  promoters'  demands  be- 
yond even  the  available  resources  of  the  domestic  banks  and 
the  resort  to  European  lenders  on  an  unprecedented  scale  to 
discount  our  promotin<jf  banker's  notes.  When  the  forei<»"n  c{\\)- 
ital  beii'an,  as  it  did  two  months  aL;"(),  to  be  recalled,  tlie  result 
was  not  in  doubt." 

P^rom  the  Chicaofo  Banker  for  December  ISth,  l'>(^2,  in  a  well 
written  article  by  "^V  retired  Chicaj^o  Banlver,"  I  (piiite  the 
i()llowin<^': 

"There  is  a  certain  ironN'  of  fate  in  the  tact  that  we  are  de- 
batinj^-  this  cpiestion  eij4"ht-and-lit ty  years  after  the  settlement 
which  stands  for  the  enliiiditened  jud^^-meiit  of  Rnj^dand's  finan- 
ciers. The  directors  of  the  Bank  of  iCnLi'l.iiid  had  the  unlimited 
ri<4"ht  to  issue  notes  aj^'ainst  their  portlojin,  until  l^eel's  Act   of 


16 

1844  jifave  the  Old  Lady  of  Threadneedle  street  the  strait 
jacket  she  has  worn  ever  since.  As  Bagfehot  says  in  his  classic 
Avork,  entitled  'Lombard  Street'  this  authority  was,  in  more 
than  one  instance,  used  with  the  extremest  unwisdom,  so  that  de- 
vastating" panics  followed  hard  upon  the  heels  of  the  reckless 
speculation  which  too  great  facilities  fo)-  borrozvi)i^^  had  oi- 
gendered. ' ' 

W.  R.  Lawson  writinof  to  the  London  Bankers'  Mag^azine 
said:  "Whoever  else  may  be  to  blame,  the  New  York  banks 
did  not  owe  their  recent  trouble  to  undue  zeal  on  behalf  of  the 
trade  of  the  country.  It  was  not  their  commercial  discounts 
that  reduced  their  cash  reserves  below  the  legal  minimum.  A 
specially  bad  feature  of  the  situation  was  that  so  much  bank 
money  had  been  diverted  from  commercial  to  stock  financing-." 
In  another  article  he  says — "Fears  of  there  not  being-  money 
enougdi  to  g-o  around  always  appeal  to  the  mercantile  imag"ina- 
tion,  and  American  bankers  have  for  a  g"ood  man}^  years  per- 
sistently harped  on  this  chord.  They  have  not  been  discour- 
ag-ed  by  the  paradox  that  the  United  States  has  one  of  the 
most  copious  currencies  enjoyed  by  any  country  of  equal  com- 
mercial rank."  He  laug-hs  at  our  follies  and  declares  the 
"Combineers"  are  the  source  of  trouble. 

Metropolitan  journals  everywhere  make  similar  comments. 

Does  not  this  compilation  of  opinions  made  more  than  six 
months  ag'o,  seem  in  the  lig^ht  of  later  events  prophetic? 

It  seems  needless  to  quote  further  than  to  say  that  the  nota- 
ble address  of  Prank  A.  Vanderlip  in  October  last  at  Wilming- 
ton, N.  C,  oug-ht  to  ring-  the  death  knell  of  any  methods  to 
bring-  about  further  inflation  with  its  resultant  hig-li  prices,  in- 
creased imports,  decreased  exports,  thus  bring-ing-  about  much 
sooner  a  reaction  in  our  progTess  which  is  as  certain  as  that 
history  repeats  itself.  If  any  one  seeking-  truth  and  will  see 
the  hand- writing-  on  the  wall,  he  is  commended  to  carefully  read 
the  standard  authorities  on  Political  Economy  for  parallel  con- 
ditions, and  the  fog-s  of  the  common  error  as  to  the  cause  of 
trouble  would  be  illumined  by  a  clearer  lig-ht.  In  view^  of  all 
these  facts,  is  our  trouble  lack  of  mone}'  or  is  it  over-specula- 
tion? 

Doubtless  some  are  clamoring-  for  asset  currency  because 
the}'  think  there  is  profit  in  it,  but  as  sure  as  there  is  material 
profit  in  its  issue  and  it  is  not  confined  to  g-reat  centralized  in- 
stitutions which  are  more  likely  to  be  prudent  in  issuing-  it. 


17 

there  bein«-  no  monopoly  in  banking-  the  multiplication  of  banks 
would  soon  destroy  such  profits.  I  assert  that  a  national  bank 
has  no  more  ri^^^ht  to  issue  currency  when  its  credit  is  strained 
and  force  it  on  an  unwilling- public  without  interest  or  penalt}', 
than  hav'e  state  banks,  or  a  merchant  or  manufacturer  under 
like  conditions.  It  never  should  be  done  except  in  emerg-encies. 
In  an^'  case  collateral  should  be  put  up  as  security,  and  a  ta.x 
imposed  high  enough  to  drive  it  out  of  use  as  soon  as  its  work 
is  done.  The  interest  rate  is  the  check  valve  to  prevent  undue 
expansion  and  inspire  conservatism,  not  onlv  in  banking,  but 
in  all  commercial  pursuits.  I  assert  with  conlidonce  that  no 
parallel  case  is  extant  toda}'  that  compares  with  our  subject 
under  discussion.  Large  centralized  institutions  onh'  have  the 
rigfht  anywhere  of  issuing-  a  limited  amount  of  asset  currency. 
Germany  is  financially  depressed  today  because  of  the  abuse 
of  tlie  license  accorded  her  g-reat  centrali/A'd  bank,  as  hereto- 
fore noted. 

Canada  which  is  harped  about  so  much,  is  one  of  the  most 
un progressive  countries. 

The  early  ox-team  days  when  bullocks,  wampum,  beads, 
skins,  etc.,  were  leg'al  tender;  when  collateral  and  g-old  were 
scarce,  have  g-iveu  way  to  abundance  of  g-old,  plenty  of  collat- 
eral, abundant  prosperity  and  a  confidence  that  has  built  a 
colossal  sui)erstructure  of  credit  unknown  in  ancient  or  modern 
times.  Shall  we  build  a  metallic  foundation  on  which  this 
structure  shall  sta-nd,  broad,  strong-  and  enduring-,  or  shall  we 
undermine  the  house  we  have  built  by  piling-  credit  on  credit 
and  misname  it  Reform?  Oh  Reform!  Reform!  What  crimes 
are  committed  in  thy  name.  Blow  up  the  balloon  to  the  limit, 
and  then  gfive  it  another  puff;  gfivethe  rubber  another  stretch 
after  it  has  been  drawn  almost  to  the  point  of  breaking-;  take 
another  drink  when  the  intoxicated  patient  is  over-loaded.  No! 
No!  Let  us  pour  oil  on  the  troubled  waters,  put  the  brakes  on 
the  over-worked  engine,  put  more  l)allast  in  the  hold,  instead 
of  adding-  to  the  sails. 

This  country  is  to  be  cong-ratulated  that  in  the  year  1*^02  no 
asset  currency  was  allowed,  thus  causing  a  check  to  the  wild 
and  reckless  pace  of  the  promoters  assisted  by  some  over- 
greedy  bankers.  Another  safety  valve  was  the  wonderful 
prosperity  of  the  country  as  a  whole,  even  if  we  did  not  have 
asset  currency.  If  l>anks  could  Iiave  issued  asset  currencv, 
thus  still  lurther  inflating-  conditions  under  the  g-et  rich  quick 


18 

l\'vcr,  I  fe.'ir  results  would  have  l)een  somewhat  like  German^^'s 
r)()0  experience.  Forei<:;'n  hanks  realized  our  condition  and  put 
the  brakes  on  by  raising-  the  rates  on  mone}'  so  hif^h  that  fur- 
ther expansion  was  checked.  The  interest  rate  should  be  the 
corrective  for  all  troubles  except  occasional  enierifencies  which 
niij^dit  call  for  more  heroic  treatment.  The  world  is  open  to  us 
to  borrow  in  case  of  need  and  with  ([uick  transportation  and 
plenty  of  gfood  collateral,  with  slifjfht  fluctuations  in  interest 
rates,  legitimate  interests  will  rarely  suffer.  An  occasional 
]\'inic  is  inevitable  in  all  proo-ressive  countries.  It  has  its  day 
like  the  measles  and  the^ifrip.  Political  Economists  of  all  ages 
have  wrestled  with  the  knotty  elastic  problem  in  the  hope  of 
evading-  panics,  but  failed.  In  these  latter  days  the  woods  are 
full  of  popular  elastic  nostrums  to  cure  a  case  of  short  cash  to 
move  the  crops,  when  the  true  diagnosis  proves  that  the  com- 
mon principles  of  prudence  have  been  violated,  and  over-spec- 
ulation and  excessive  promotions  have  run  riot.  The  shock  of 
last  fall  has  probably  sobered  up  the  more  conservative,  there- 
fore as  the  unexpected  usually  happens,  the  forewarning  will 
probably  prevent  a  repetition  of  the  trouble. 

It  is  to  be  hoped  that  the  bargain  counter  which  has  been 
laden  with  rich  pickings  for  conservative  buyers  with  cash,  in 
the  past  few  months,  has  been  nearh'  cleared;  that  the  undi- 
gestible  securities  w\\\  be  dumped  into  the  sewer,  and  progress 
along  conservative  lines  once  more  be  resumed  with  Anglo 
Saxon  energy. 

THE    PARAMOUNT   QUESTION. 

A  weighty  responsibility  rests  upon  our  American  Bankers' 
Commission,  and  more  with  our  Statesmen  if  this  question  of 
asset,  elastic  or  emergency  currency  is  to  be  settled  on  sound 
and  enduring  lines.  Our  patriotism  for  country  ought  to  rise 
higher  than  to  settle  this  momentous  question  wnth  a  view  of 
larger  profits  to  the  banks.  If  New  York  is  to  become  the 
world's  financial  center,  the  quick-sands  of  asset  currency, 
added  to  our  present  over-supply  of  soft  money,  will  retard  the 
day  on  account  of  loss  of  confidence  in  our  standard,  and  onl}' a 
gold  foundation  of  international  mone}"  will  hasten  it.  If  this 
country  will  continue  its  wonderful  onward  progress,  it  will 
not  advance  on  exploded  academic  theories  or  populistic  nos- 
trums, but  on  sound  and  conservative  lines.  I  firmlv  believe 
from  a  careful  survey'  of  the  World's  History  on  banking,  that 


10 

as^ct  currency,  as  a  cure-all  for  economic  troubles  is  a  Iniud,  a 
delusion  and  a  snare.     The  remedy  is  worse  than  the  disease. 
Waukesha,  AVis.,  Auo-.  1,  1903. 

AXDKKW  JAY  FRAMK. 


QUKRY. 

In  these  days  of  great  accumulation  of  surplus  capital,  as  indicated  by- 
low  interest  rates,  expanded  credit  generally  and  large  per  capita  circulation, 
permit  this  pertinent  query  : 

If  a  bank  extends  its  loans  to  the  limit  of  its  assets,  then  swaps  its  I.  O.  U's 
without  interest — secured  by  a  first  lien  on  its  assets,  the  depositor  taking  a 
second  mortgage— for  its  customer's  note  at  5  per  cent  to  6  per  cent,  thus  carry- 
ing out  the  asset  currency  advocate's  ideas,  does  not  that  act  smell  loudly 
of  "kiting"  ? 

Confidence  upbuilds,  distrust  paralyzes. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


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